CHAPTER-I

INTRODUCTION
1.1 INTRODUCTION TO THE TOPIC
Credit risk is defined as the possibility of losses associated with diminution in the credit of quality of borrowers or counter parties. In a banks portfolio, losses stem from outright default due to inability or unwillingness of a customer or counter party to meet commitments in relation to lending, trading, settlement and other financial transactions. As credit risk is one of the challenging tasks to banks I have selected this topic for my study in order to know the various types of risk and the types of strategies the banks use to mitigate the risk.

As part of its vision of using technology to provide affordable banking services to the vast rural population of India, Canara bank has extend the performance and cost benefits of enterprises Linux to its customers. With a modernized branch infrastructure, Canara bank hopes to serve customers in a timely and efficient manner, reinforcing its image of being a customer savvy bank

About the Canara Bank: Founded in 1906, Canara Bank is one of the premier banks in India, with a net work of 2578 branches across the country. The bank was the first two launch networked ATMs in India and obtain and ISO certification. Canara bank has also achieved the distinction of being the countrys highest net profit earner among nationalized banks for the year march 2007. The bank has already carved a niche in providing IT-based services such as networked ATMs, anywhere banking, Telebanking, Remote access Terminals, Internet and Mobile banking, Debit cards, etc. Canara bank a vision to help improve the economic condition of the common people of India by inculcating the habit of savings in rural areas

As part of its vision of using technology to provide affordable banking services to the vast rural population of India, Canara bank has extend the performance and cost benefits of enterprises Linux to its customers. With a modernized branch infrastructure, Canara bank hopes to serve customers in a timely and efficient manner, reinforcing its image of being a customer savvy bank

1.2 NEED FOR THE STUDY

The framework of the rules/regulations/instructions issued by the Reserve Bank of India to Scheduled Commercial Banks relating to credit exposure limits for individual / group borrowers and credit exposure to specific industry or sectors, and the capital market exposure of bank will help the bank in maintaining its level of credit risk in safe zone. So a bank should know about the limit of exposure to sensitive sectors and hence the category of risk it falls in. so that better risk management and avoidance of concentration of credit risks is possible.

1.3 STATEMENT OF THE PROBLEM

The sensitive sectors declared by the RBI are Agriculture & allied activities, Direct & Indirect Agriculture, Transport, real estate, capital markets, commodities, Loans - Personal, housing, staff, others . So the problem at hand was to study, analyze and measure the exposure level of these sectors in the current scenario. To find out which banks are really in safe zone and dangerous zone when compared to the risk level of their exposure with respect to different sectors. The study includes the examination of the risk category wise country exposure of different banks as mentioned in sample size.

1.4 OBJECTIVES OF THE STUDY

To know the methods to be implemented in banks.

To know the various methods used by bank to mitigate credit risk.

To know the various types of credit risk in bank.

To know the executing methods used in managing credit risk.

1.5 RESEARCH METHODOLOGY

This project work is an analytical research The period of the study is 2007-08 to 2010-11 Data collection has been done through banks annual report and RBI data base i.e., secondary data Tools that are used in this study are Trend analysis and comparative analysis using MS-EXCEL 2010, ANNOVA using SPSS 16.0. The sample consists of old and new private banks.

TABLE: 1.1 Sample Size For Each Sector And Parameter

Banks

Real Estate

Capital Market

Direct Exposure In Real estate 6 6 12 6 6 12

Indirect Exposure In Real Estate

Risk Category Wise Country Exposure 9 7 16

Old Private New Private Total

15 7 22

11 5 16

1.6 LIMITATIONS OF THE STUDY

Interpretations and findings are an indication of present and past scenario, and cant predict the future. Data from all private banks is not available. Category of risk can be found for every bank but not exact level of risk. Study is done only for private banks.

1.7 CHAPTERIZATION
Chapter 1 Introduction of the exposure norms in general, in addition to the need for the study, statement of the study, objectives of the study and the research methodology used. Chapter 2 Profile of the Indian banking Industry along with the profile of CANARA bank. Chapter 3 Insight about guidelines relating to exposure norms issued by the Reserve Bank of India to Scheduled Commercial Banks Chapter 4 Analysis and interpretation of the data Chapter 5 Suggestions and Recommendations based on the study done.

DATA ANALYSIS SAMPLE FORMAT

Table: 4.4 Trend Analysis For Exposure To Capital Market Sector (2007 is base year) of Old Private Sector Banks Banks 2008 2009 2010 2011 Bank Of Rajasthan Ltd -72.289 -50.466 -87.635 City Union Bank Limited 78.3505 80.2978 5.99465 412.6 Jammu & Kashmir Bank Ltd 41.6739 5.93841 18.8233 60.828 Karnataka Bank Ltd 79.277 39.8183 55.4684 61.6591 The Dhanalakshmi Bank Ltd 18.4429 -42.374 -72.75 325.144 Note: analysed from table 4.1 using MS-EXCEL 2010 Fig: 4.1 Trend Analysis For Exposure To Capital Market Sector (2007 is base year) of Old private banks
500 400 300 200 2008 100 0 -100 -200 2009 2010 2011

NOTE: Complied from table 4.4 using MS-EXCEL 2010 INTERPRETATION:

Most of the banks have decreased their exposure in capital market sector in 2008 & 2009 when compared to 2007 due to tightening of exposure norms by RBI

PERFORMING ANNOVA FOR DATA FROM TABLES 4.1 Null hypothesis: Ho: There is no significance variance in exposure to capital market bank wise and year wise
YEAR WISE

Table: 4.2 ANOVA performed YEAR WISE to capital market sector

Sum of Squares Between Groups Within Groups Total 6.550E11 2.527E13 2.593E13

df 4 93 97

Mean Square 1.637E11 2.718E11

F .602

Sig. .662

Compiled from table 4.1 using SPSS 16.0

INTERPRETATION: From TABLE 4.2 THE SIGNIFICANCE LEVEL > 0.05 i.e., null hypothesis is accepted hence there is no significance variance in bank wise exposure to capital market sector.

BANK WISE
TABLE : 4.3 ANOVA

performed BANK WISE to capital market sector

df 15 82 97 Mean Square 5.634E11 2.132E11 F 2.643 Sig. .003

Sum of Squares Between Groups Within Groups Total 8.451E12 1.748E13 2.593E13

Compiled from table 4.1 using SPSS 16.0

INTERPRETATION From TABLE 4.3 THE SIGNIFICANCE LEVEL < 0.05 i.e., null hypothesis is rejected hence there is significance variance in bank wise exposure to capital market sector.